# Priority Payouts: Why Preferred Stock Dividends Matter

Preferred dividends are fixed income payments that get priority over common stock dividends—they must be paid out first, no exceptions. Here's why this matters:

**The Core Mechanics:**
Imagine a company with $1M in profits. Preferred stockholders get their cut before common stockholders see a dime. It's like being first in line at the bank.

**The Numbers:**
Calculating is simple: Par Value × Dividend Rate = Annual Dividend

Example: $100 par × 5% rate = $5/year ($1.25/quarter)

**Key Advantages:**
- **Fixed Rate**: No surprises. Unlike common dividends that dance with company performance, preferred dividends stay locked in
- **Cumulative Protection**: Missed payments stack up and must be paid before any common dividends flow. If a company skips payments, they owe it all back
- **Liquidation Priority**: When a company goes down, preferred stockholders get a higher claim on remaining assets than common shareholders (though bonds rank higher)

**The Trade-Off:**
You get stability and predictable income, but limited upside. Preferred stock doesn't benefit from company growth the way common stock does.

**Bottom Line:**
Preferred dividends = income investor's best friend. Reliable payouts, priority treatment, and built-in safety nets make them less risky than common stock—ideal if you're chasing steady cash flow over moonshots.